The Political Economy of Central Bank Digital Currencies (CBDCs)

The emergence of central bank digital currencies (CBDCs) has sparked significant debates extending beyond the technical and economic realms, raising critical questions about their potential impact on the broader political economy landscape. It is crucial to examine the political and geopolitical implications of this shift. This study explores the political economy considerations surrounding CBDCs, unravelling the intricate interplay between economic motivations, political agendas and power dynamics. The analysis begins by exploring domestic implications, investigating how adoption could influence the balance of power between central banks, governments, and the private sector. It examines the potential for CBDCs to enhance central bank autonomy, reshape fiscal and monetary policy coordination, and disrupt traditional financial intermediation models. The study then moves to the international political economy, assessing geopolitical ramifications. It evaluates the potential for CBDCs to challenge the hegemony of existing reserve currencies, thereby reshaping global financial landscapes. It also investigates the implications of cross-border interoperability on international trade, capital flows and economic interdependence. By exploring case studies of major economies, the study provides empirical insights into the considerations guiding development strategies. Finally, it examines the potential for international cooperation versus competition, highlighting how new alliances or tensions may emerge in the CBDC sphere.